Iran wants oil majors to revive ageing oilfields

Vienna, December 6, 2013

Iran's leading oil negotiator says Tehran wants Western oil companies to revive its giant ageing oilfields and develop new oil and gas projects once sanctions are lifted.

Mehdi Hosseini, in charge of revising Iran's oil investment contract, told Reuters that oil companies will find it hard to pass up Iran's "low cost, low risk" investment opportunities that will be offered on more attractive commercial terms due to be revealed in early April at an energy conference in London.

"We will have many promising projects for the international oil companies," said Hosseini, Iranian Oil Minister Bijan Zanganeh's former deputy. "Brown fields, green fields and exploration blocks - in both oil and gas."

Western sanctions imposed in 2012 on Iran for its nuclear programme have choked Tehran's production - output is down a million barrels per day (bpd) since the start of 2012 to 2.7 million bpd - and lost it billions in oil revenue.

Hosseini, said international oil companies (IOCs) could play a role in rehabilitating ageing onshore oilfields of Ahwaz, Gachsaran and Marun - the backbone of Iran's production - as well as Agha Jari and Bibi Hakimeh - more modest, onshore producers.

"We need technology and investment from the IOCs to help reverse the depletion of these oilfields," he told Reuters by telephone from Tehran.

Zanganeh and other top Iranian officials say the revival of these and other fields will allow the country to raise production to 4 million bpd within six months of sanctions being lifted. Western experts are more conservative, saying 3 million to 3.5 million bpd is more likely.

Iran reached an interim deal last month with six Western powers to limit its nuclear programme, under which sanctions on oil investment and trade with Iran may be lifted next year.

Iran and Western oil companies have wasted no time of making contact in the hopes of a full lifting. Paolo Scaroni of Italy's Eni, was the first Western CEO to meet publicly with the Iranian oil minister on Thursday and others are queuing up.

Eni, Royal Dutch Shell and Total have already developed some of Iran's oilfields from scratch. And they are now revitalising giant oilfields in neighbouring southern Iraq.

Hosseini, a veteran negotiator reappointed under the new reformist presidency of Hassann Rouhani, is widely respected by Western oilmen and will lead the effort to craft an investment contract that is more attractive than the service contract model Baghdad used to lure the world's top oil companies.

"Our new contract model is going to be better than Iraq's and it will be very competitive in the region," he said.

Critics of Iran's existing buy-back contracts - which compensate foreign investors with production - complain of being unable to book reserves and want longer-term, more flexible arrangements.

Though details of the new contract are closely guarded, Iranian Oil Minister Bijan Zanganeh said in Vienna the new model - a hybrid between a service contract and a production sharing contract - would run close to 20 years.

Gas projects will also be given high priority as will development of oil and gas fields shared with neighbouring countries, said Hosseini. Exploration blocks will also be on offer.